Are gift funds considered reserves for loan approval?

In the context of USDA Rural Housing Loans, gift funds are not considered reserves for loan approval. Reserves typically refer to the borrower's savings or assets that can be liquidated to make future mortgage payments. These are funds already in the borrower's possession that demonstrate their financial stability and ability to handle ongoing loan obligations.

Gift funds, while they can certainly help with the down payment or closing costs, do not meet the definition of reserves because they do not come from the borrower’s own financial sources. They are essentially funds provided by someone else, and thus do not reflect the borrower’s financial health or capacity to save over time. For underwriting purposes, lenders focus primarily on the borrower's own funds and stability when assessing reserves.